Good governance at banks and savings banks is the key to reducing systemic difficulties in the banking system

Corporate governance at banks and savings banks plays a key role in avoiding systemic difficulties in the banking system. Banka Slovenije assesses the suitability of supervisory board members on an individual and collective basis. They have a huge responsibility in the performance of banks and savings banks, in risk management, and in supervising the work of management boards. In so doing we uphold the highest standards and criteria. All supervisory board members are treated according to the same legal and regulatory requirements, including the workers’ representatives who now sit on bank supervisory boards under new Slovenian legislation. Our assessment is that bank supervisory boards, which in general are of good quality, have room to make improvements mainly in the area of theoretical and practical experience of banking. We therefore expect banks and savings banks to identify supervisory board candidates with in-depth experience of banking and finance.

Banka Slovenije has published its expectations in the assessment of the suitability of members of supervisory boards of banks and savings banks. The material reiterates that the supervisory boards of banks and savings banks play a key role in risk management, in particular from the perspective of ensuring balance in their banking operations, and also constitute a core component of their effective internal governance arrangements. The banks and the supervisory board members themselves therefore need to be aware of the importance of their role at the bank, from the perspective of the responsibilities involved.

Banka Slovenije assesses the suitability of supervisory board members on the basis of the following criteria derived from the European and Slovenian legal framework: (i) reputation, (ii) theoretical and practical experience, (iii) independence and conflicts of interest, (iv) the ability to commit sufficient time to perform the function, (v) the vision for the bank’s operations and supervision, and (vi) the collective suitability of the supervisory board. Here we should reiterate that these criteria also apply to workers’ representatives, whose presence on bank supervisory boards is now mandatory under Slovenian legislation.

Banka Slovenije finds that since the introduction of more stringent criteria with regard to the suitability of members of management bodies in 2015 there has been a significant improvement in the composition and expertise of management boards, but developments are dragging slightly when it comes to the collective suitability of the supervisory boards of banks and savings banks. Although they are generally effective, improvements can in particular be made in the area of the theoretical and practical banking experience of their members. We therefore expect banks and savings banks to take account of this in their internal suitability assessment procedures, thereby helping to improve the functioning of bank supervisory boards.